Storms on the scale of Sandy always threaten to rewrite the way insurance companies set homeowners insurance rates. Hurricane Katrina did it before Sandy, Andrew before Katrina and so forth. Each time one of these catastrophic, off-the-chart outliers makes landfall, it inevitably begs the question: Is this the new normal?
But this time there is reason to believe that Sandy may be the bellwether of a new actuarial reality: the slow-moving, low-category drencher that pummels territory previously off limits to such assault. Huge storms like Sandy and last year's Irene, once considered primarily a Gulf Coast threat, seem to be migrating from the Sun Belt to the Rust Belt of late, lending credence to climate change prophets who have long predicted just such a global-warming turn of events.(Check out the storm's impact on your taxes.)
Insurance actuaries who for years have been factoring commercial and residential growth along the Gulf Coast into their rating models must now adjust for a new twist: Instead of the people flocking to the storms, the storms seem to be encroaching upon the population centers of the Midwest and Northeast.
As a result, both the number of natural disasters and insured losses from those events have been trending upward in the past decade, causing U.S.-based property and casualty insurers to go from having net income of $23 billion in 2007 to an estimated $34 billion deficit last year, according to A.M. Best. Average yearly homeowners insurance premiums have risen 22 percent during the same period and topped the $1,000 mark for the first time this year, at an average of $1,004, according to the Insurance Information Institute.
Can you expect your rates to increase as a result of superstorm Sandy? That has certainly been the trend. But the pain may not be entirely in the premium. Instead, insurers have taken to slicing and dicing policy structures to limit or exclude certain once-standard coverages on which they've lately been taking a bath, specifically wind damage. Such limitations and deductible options, now commonplace to homeowners along the Gulf Coast, aim to spread the pain and keep proposed across-the-board rate hikes acceptable to state insurance regulators.
Lynne McChristian of the Insurance Information Institute says there's little cause to worry about the solvency of your home insurer.
"They're prepared to handle this sort of thing. They know this will keep happening, they just don't know when," she says. "This is how insurance companies manage their business."
And like any business, the last thing home insurance companies want to do is raise premiums too far beyond the means of their customers.
Financial health of major home insurance companies
|American Family||a (Excellent)|
|Liberty Mutual||bbb (Good)|
|State Farm||aa+ (Superior)|
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